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GOLD MARKET DYNAMICS PART II
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THE CONSEQUENCES OF MARKET MANIPULATION
There is much evidence suggesting the Gold price today is not the result of free-unrestricted market forces, but
rather, the result of agendas and contrived schemes to keep the price below its natural free market level.
As with any artificially low price fixing, there are always consequences.
1.DEMAND AT THE CURRENT PRICE FAR EXCEEDS THE AVAILABLE SUPPLY.
High demand fuelled by low prices eventually leads to artificial shortages. To illustrate this in "The Free Market
Gold and Money Report", James Turk uses the example of the gasoline shortages that appeared in the United States in
the 1970's. When the US government's efforts to keep the gasoline price below free-market levels, shortages rapidly
appeared. Many people will remember the long lines of cars waiting to buy gasoline.
In recent months people have been finding it increasingly difficult to walk in off the street to a bullion dealer and purchase gold in any form. An example is the US mint. Through most of this year, while coining American Eagles at full capacity, has been unable to keep up with demand. Other evidences of thin supply are evidenced in longer delivery times of bullion to jewelers and refiners.
While shortages at coin dealers are dismissed as Y2K shoppers clearing the shelves, in truth it exposes a deeper problem, that unless fixed, will in time lead to greater and greater shortages.
The pronounced two tier pricing structure is very evident today in the gap, or spread, between market or spot price and the premiums paid to purchase the metal. While it is normal for to pay a margin over spot, the premiums people have been paying recently are huge and continue to grow
IN SUMMARYWhile gold leasing and forward selling have postponed solved the short term demand problem, it does not address a long term supply deficit.
Some analysts estimate that gold's free-market price is north of $400 per ounce. Others, like Frank Veneroso have argued that a price above $600 is needed to once again clear supply and demand.
The gold market (as with silver) has the potential to escalate very quickly.
It a very small market. At today’s price, the total world supply of gold is worth a little over US$1.3 trillion. Gold available to the market is much less than the total 125,000 ton of above ground gold, the rest is simply not available at any price – it’s tied up in other applications.
This is just 1 tenth of just the US stock market, which today is capitalized at over US$10 trillion. If less than just 1/10 of the stock market attempted to "trade-in" their paper for gold, they simply could not get into this very small market at any price.
Despite current record demand worldwide, there has been no monetary demand for gold in recent years. When this changes, it will put further pressure on demand.
Past reports of Central Bank gold sales flooding the market with never give a full or accurate picture. Central bank sales now or in the future do little to change the real market supply deficit.
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